Ocado profits boosted by home delivery demand during pandemic

Online grocery platform and solutions provider Ocado on Tuesday reported a 68.8% rise in core earnings as the coronavirus pandemic drove demand for home deliveries.

Earnings before interest, tax, depreciation and amortisation (EBITDA) in the 12 months to November 29 rose to £73.1m from £43.3m a year earlier and higher than company estimates of £70m.

Full-year revenues were up 32.7% to £2.3bn driven by a 35% rise in its retail venture with Britain's Marks & Spencer to £2.19bn.

However, the company said total capital expenditure for the group is expected to be around £700m and short-term profits would take a hit as it continued to target more deals in its solutions business to generate extra cash fees.

Ocado said it expected fiscal 2021 revenues to increase as a result of the acquisition of Kindred Systems and Haddington Dynamics by approximately £30m with a small negative impact on EBITDA.

The results come as latest industry data from market research firm Nielsen showed the online share of UK grocery sales hit a record 16% in January, up from 8% in the same month last year, as the third national Covid-19 lockdown boosted demand. Britons spent £1.4bn in the four weeks to January 30, up 121 year on year, Nielsen said.

Fee income from companies using Ocado's order fulfilment systems rose more than 52% to £123.9m. It provides technology and logistics expertise for supermarket chains such as France's Casino.

Ocado said retail revenue growth in the current fiscal year was "highly dependent on length of Covid-19 restrictions". Three new UK warehouses were expected to open, adding 40% capacity. The online grocer pledged to invest an extra £30m in technology to meet surging demand.

Revenue from its International Solutions partners was expected to increase to around £50m, reflecting the benefit of revenue from two sites opened in fiscal 2020 and two more expected to open in the first half of the current financial year.

Chief executive Tim Steiner said the "rapid acceleration of many pre-existing trends in business and society has been a feature of the Covid-19 crisis and the dramatic channel shift in grocery is a clear example of this".

"The landscape for food retailing is changing, for good."

Hargreaves Lansdown analyst Sophie Lund-Yates said Ocado's business case "hinges on a very different story to the delivery vans scurrying around the country".

"Ocado Solutions, which charges retail partners to use its automated warehouses, is what matters – especially with half the retail division now sold to M&S."

"Development of these customer fulfilment centres means capital expenditure plans for 2021 have rocketed outside what the market was expecting. Spending on overseas customer fulfilment centres almost tripled last year – over half of which went on deals in North America."

"The addressable market is huge, especially with the long-term shift to online shopping having been accelerated. But the levels of profitability and investment needed are still disappointing. The important thing now is getting a fair few new Solutions contracts inked, and soon.”